NOKIA CORP. DELIVERED A SOBER WARNING Friday that a “rapid change” in consumer spending over past weeks led the handset giant to cut its estimates for mobile device volumes in the fourth quarter and for 2009.
Nokia, with about 40% global share of the handset market, is considered a bellwether for the mobile device industry, which itself has acquired a bellwether-like status for global consumer spending in general.
The Finnish company’s stock dropped more than 12% Friday after it issued its revised outlook. Stock in Motorola Inc., Apple Inc. and
Research In Motion Ltd. also trended downward.
Meanwhile, closer to home, the U.S. Department of Commerce reported Friday that retail sales in the U.S. dropped 2.8% in October from the prior month, a slide that exceeded the 2.65% drop that followed the 9/11 attacks. This was the fourth consecutive monthly drop in retail sales.
Holding steady
While Nokia forecast that fourth-quarter volumes would be slightly up, sequentially – a seasonal expectation – it said that 2009 global, industrywide volumes would be down from this year. The company said, however, that it expected to hold its market share or increase it slightly, despite conditions.
In a conference call, Nokia executives said that consumer demand in emerging markets was holding up better than in developed markets. Among its competitors, Nokia has the most pervasive global reach into emerging markets such as India and China and it has maintained envious profit margins at the low end of its portfolio. The company also just announced an effort to introduce low-cost handsets with Web access and applications geared toward the needs of consumers and enterprise in those markets.
One analyst called the warning “relatively mild” in contrast to warnings issued recently by Qualcomm Inc. and Intel Corp., but called the timing of Nokia’s statement “unsettling.”
“The timing of the warning is unusually early for a handset vendor,” wrote analyst Tero Kuittinen at Global Crown Capital L.L.C., in a note to investors. “The second half of the quarter has not yet begun and we rarely see November warnings in the cellphone business.”
330M units forecast for Q4
Kuittinen called Nokia’s revised, industrywide guidance of 330 million units for the fourth quarter “tolerable, considering how rapidly Europe and North America are plunging into recession.”
The analyst speculated that Nokia chose a “blunt warning” in advance of its Dec. 4 Capital Markets Day for investors and analysts to avoid having the event overshadowed by bad news. He said it was the second consecutive year that Nokia had initially stuck with optimistic guidance that it later had to revise.
“The erratic guidance syndrome Nokia has developed over the past year is definitely something the company has to address,” Kuittinen wrote.
Nokia said its revised outlook for the full year 2008 included industrywide, global device shipments of 1.24 billion, slightly less than the 1.26 billion in its previous estimate. (Nokia calculated that global unit shipments in 2007 reached 1.14 billion.)
Apart from slackening consumer spending, Nokia said that limits on credit available to its trading partners also prompted its warning.
The company also said it expected that the mobile and fixed infrastructure market would be down in 2009 from this year, which would affect its joint venture, Nokia Siemens Networks.
Nokia said it would take “decisive action” by further cutting operating expenses in 2009. Often, that means cutting jobs, but the company issued no statements on the topic. One area of announced cutbacks: the company said it would curtail the use of external contractors, consultants and professional services.
In a prepared statement, Nokia CEO Olli-Pekka Kallasvuo said that his company’s scale, brand, cost structure and broad portfolio positioned it well for adverse market conditions.
